Information Brokers Settle FTC Charges
June 27, 2000
"Pretexting" To Obtain Consumers' Private Financial Data Barred
Information brokers who used deceptive methods to obtain private financial data about consumers and then sold the data through their Web site without the knowledge or consent of the consumers have agreed to settle Federal Trade Commission charges that their scam violated federal law. The settlement will bar the deceptive practices in the future and impose a $200,000 suspended monetary judgment representing the defendants' unlawful gains.
In April 1999, the FTC alleged that James J. Rapp and Regana L. Rapp, doing business as Touch Tone Information, Inc., lied to financial institutions about their own identity - a practice referred to as "pretexting" in the information brokerage industry - to obtain private financial information about individual consumers. The defendants might claim to be the consumer about whom they were seeking information, and claim, for example, that they were calling the bank because they had forgotten their checkbook and needed information about their account. Information brokers have often marketed pretexting services via the Internet to anyone willing to pay. The FTC alleged that the pretexting was deceptive and that Touch Tone's disclosure and sale of consumers' private financial information obtained by pretexting without consumers' knowledge or consent was an unfair act in violation of the FTC Act.
The Commission vote to accept the stipulated final judgment and order was 4-1, with Commissioner Orson Swindle issuing a dissenting statement.
Commissioner Swindle explained that he had reluctantly voted against the complaint in this matter last year, not from any belief that pretexting is an acceptable way to gather information, but because the facts presented by this case did not give him reason to believe that these defendants violated the Commission's long-standing deception standard or the unfairness standard established by Congress in Section 5(n) of the FTC Act. He added that Congress took up the issue of pretexting shortly thereafter and, in Section 521 of the Gramm-Leach-Bliley Act of 1999, prohibited pretexting under certain circumstances. Because the Gramm-Leach-Bliley Act gives the Commission authority, independent of Section 5, to proceed against pretexting in the future, there will be no need to distort the Commission's long-standing interpretation of deception in an attempt to stop a practice that falls outside the reach of the FTC Act. However, because the Commission's complaint was based solely on alleged violations of the FTC Act, and because the Gramm-Leach-Bliley Act does not apply retroactively, he dissents from the settlement for the same reasons that led him to dissent from the complaint.
FTC v. James J. Rapp and Regana L. Rapp, individually and doing business as Touch Tone Information, Inc. (District of Colorado)
- Stipulated Consent Agreement and Final Order
- Dissenting Statement of Commissioner Swindle
- News Release
Source: Federal Trade Commission
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